Income Tax Refund: Eligibility, Procedure and Interest

A taxpayer becomes eligible for an Income Tax Refund when the taxes paid are higher than their actual tax liability, inclusive of interest. It could be in the form of advance tax, self-assessment tax, TDS, etc. Hence, it is quite common for taxpayers to be curious to know the ITR refund status.

Eligibility of Income Tax Refund

To be eligible for an income tax refund, the taxpayer must file an income tax return. In the following instances, the taxpayer becomes eligible to claim a tax refund:

• When the advance tax paid on estimated income is higher than the actual tax liability of a taxpayer.
• If tax deducted at source (TDS) from salary, interest, professional or other incomes is higher than the tax payable on regular assessment.
• When self-assessment tax paid is in excess of actual tax liability.
• When an individual pays taxes on income in both India and a foreign country (with whom the Indian government has an agreement to avoid double taxation).

How to claim Income Tax Refund?

Income Tax Department will not automatically pay you a refund just because you have paid excess taxes. Hence, it is mandatory to file an income tax return to claim a refund.

Additionally, while filing, it is necessary to declare the income, deductions, taxes paid, and their details (challan details) to the ITD.

File Your Tax Return

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Once you have filed your income tax return, you need to wait for an assessment from the Income Tax Department. Here is what you need to do:

• You will receive an intimation u/s 143(1) once the return is processed.
• It will contain a comparison of income and tax calculations as per your tax return and as per the Income Tax Department.
• If the refund amount stated in the ITR and the notification match, the refund is correct. A taxpayer can track income tax refund status on e-filing portal or on NSDL.

Check Income Tax Refund Status

Track Income Tax Refund online using PAN. The Income Tax Department issues the refund once the ITR is processed. Check your ITR refund status.

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Check Income Tax Refund Status

Track Income Tax Refund online using PAN. The Income Tax Department issues the refund once the ITR is processed. Check your ITR refund status.

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• However, when there is a discrepancy you need to check the calculations for reasons of mismatch, and if there are any calculation errors then you can rectify your return u/s 154(1)

ITR Refund Timeline

ITD processes the return in batches and posts that credit the eligible refund.

Usually, after e-filing and e-verifying, it takes 45 to 60 days to process a return. Once the return is processed, the ITR refund is credited within a week.

What can be the reasons for the refund failure?

There could be numerous reasons for not getting an income tax refund in time, but the following are some of the most common:

• If the taxpayer has given incorrect bank details such as account no, IFSC code, name mismatch, MICR code, etc.
• In case your bank account is not pre-validated and consequently nominated for refund
• If the details such as the payment date, BSR code, and challan number are incorrect.
• If there is a discrepancy between Form 26AS and tax information when submitting an income tax return.
• KYC for the account holder is pending.

In case of refund failure, the taxpayer can issue a refund re-issue request.

Interest on IT Refund

Many times the taxpayer does not get the refund in due time, in such a case Income Tax Department pays interest on a late refund. However, no interest shall be payable if the amount of refund is less than 10% of the tax as determined under section 143(1) or tax determined under regular assessment.

Hence, when the refund is more than 10% of the total tax payable, the taxpayer is entitled to receive a simple interest on the tax refund u/s 244A of Income Tax Act. Interest accrues at the rate of 0.5% per month or part of month.

The interest is calculated from the beginning of the next financial year i.e., from April 1 till the date of refund.

In case of interest on refund of a belated return, interest calculation is done from the date of return filing till the refund is received.

Tip

In case of interest on refund of a belated return, interest calculation is done from the date of return filing till the refund is received.

For example, Surbhi has a total tax liability of INR 30,000, and she has paid INR 44,000 as tax. She can claim the excess INR 14000 as an ITR refund. Now, if the ITD delays issuing the refund, she will be liable to get interest at 0.5% per month, as INR 14,000 is in excess of 10% of her total tax liability.

Taxability of IT Refund

IT Refund

The income tax refund is not an income and is therefore, is not taxable.

Interest on IT Refund

The interest amount is taxable under the head “Income from other sources“. Consequently, while filing returns for the financial year (FY) in which the refund was received, the interest will be taxable as per the tax slab rate.

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